UPSC MAINS 2019: India recorded highest average real wage growth in South Asia during 2008-17: ILO report

Highest average real wage growth in South Asia

 

Topic: India recorded highest average real wage growth in South Asia during 2008-17: ILO report

Topic in Syllabus: GS Paper 3 – Indian Economy

 

Highest average real wage growth in South Asia

Context:

India recorded the highest average real wage growth in South Asia during 2008-17, according to a report by the International Labour Organisation (ILO).

 

Key highlights of the report:

  • Reflecting more rapid economic growth than in other regions, workers in Asia and the Pacific have enjoyed the highest real wage growth among all regions over the period 2006—17, with countries such as China, India, Thailand and Viet Nam leading the way,
  • In South Asia, India led the average real wage growth in 2008—17 at 5.5 against a regional median of 3.7. Following India was Nepal (4.7), Sri Lanka (4), Bangladesh (3.4), Pakistan (1.8) and Iran (0.4).
  • The report said that all emerging G20 countries except Mexico experienced significant positive growth in average real wages between 2008 and 2017.
  • Countries such as China, India, Thailand and Vietnam are leading the way.
  • All emerging G20 countries except Mexico experienced significant positive growth in average real wages between 2008 and 2017.
  • Wage growth continues in Saudi Arabia, India and Indonesia, whereas in Turkey it declined to around 1% in 2017.
  • South Africa and Brazil have experienced positive wage growth starting from 2016.
  • This was notably after a phase of mostly zero growth during the period 2012–16, with negative growth in Brazil during 2015–16.
  • Russia suffered a significant drop in wage growth in 2015, owing to the decline in oil prices.
  • It has bounced back with moderate though positive wage growth.

 

Global scenario:

  • Overall, global wage growth declined to 1.8 per cent in 2017 from 2.4 per cent in 2016. The findings are based on data from 136 countries.
  • In the last 20 years, average real wages have almost tripled in emerging and developing G20 countries, the ILO report also found, while in advanced G20 countries, they have increased by just nine per cent.
  • For the first time, the ILO report also focuses on the global gender pay gap, using data from 70 countries and some 80 per cent of employees worldwide.
  • Its findings indicate that despite some significant regional differences, men continue to be paid around 20 per cent more than women; “perhaps the biggest single injustice in the world of work”, Ryder said.
  • In high-income countries the gender pay gap is at its biggest in top-salaried positions. In low and middle-income countries, however, the gap is widest among lower-paid workers, the ILO report found.
  • Its data also suggests that traditional explanations for this – such as differences in the levels of education between men and women who work – play only a “limited” role in explaining gender pay gaps.
  • In many countries women are more highly educated than men but earn lower wages, even when they work in the same occupational categories.
  • The wages of both men and women also tend to be lower in enterprises and occupations with a predominantly female workforce.
  • To reduce gender pay gaps, she recommended that more emphasis should be placed on ensuring equal pay for women and men, and on addressing the lower value placed on women’s work.

 

Global wage trends:

  • According to ILO estimates, the average world labour force participation rate stands at about 62 per cent of the working-age population, with approximately 3.3 billion individuals engaged in employment.
  • Among all who are employed, some 54 per cent, that is, 1.8 billion, are wage and salaried workers, which represents an increase of some 760 million wage and salaried workers compared to 25 years ago (ILOSTAT; ILO, 2017).
  • For most of these workers, income from wages makes up a significant proportion of their total household income.
  • On average, the share of wages in the total incomes of households including at least one member of working age ranges from about 40 per cent in some low- and middle-income countries to between 60 and 80 per cent in high-income economies (ILO, 2016a).
  • The slowdown in wage growth in 2017 occurred in spite of more rapid economic growth.
  • The average seasonally adjusted unemployment rate among the EU28 countries stood at around 6.5 per cent in April 2018, the lowest rate recorded in the European Union (EU) since December 2008.

 

Measuring the gender pay gap:

  • The gender pay gap is a widely used indicator, representing the difference in pay overall between women and men wage employees.
  • Despite their apparent simplicity, estimates of the gender pay gap are often controversial, in part because different estimates for the same country in a given time period may vary substantially.
  • Sometimes these discrepancies between estimates arise because of the multiple possible ways of defining the term “pay”, or because each estimate is based on a different subpopulation of wage employees.
  • More worrying is the finding that estimates of the gender pay gap using the same definition of pay and applying to the same population can differ considerably depending on the choice one makes on how to measure and summarize the difference in wages between women and men.
  • The raw gender pay gap refers simply to the difference in pay between women and men at a specific point in time, and is usually calculated as the margin by which women’s pay falls short of men’s. For example, if women’s pay is 75 per cent of men’s, it is said that the gender pay gap is 25 per cent.

 

What are the factors that lie behind the gender pay gap?

  • The estimation of the gender pay gap at different locations in the wage distribution is a useful tool as it can shed light on the potential impact of particular policies on the gender pay gap.
  • introducing a minimum wage could reduce the gender pay gap at lower wage levels, collective pay agreements could have the same effect in the middle of the wage distribution
  • the policies that promote a greater representation of women in senior and highly paid positions could have a positive effect at the top levels
  • There seems to be a tendency for the gender pay gap to increase as we move from lower to higher points in the hourly wage distribution, although this is by no means apparent for all countries.
  • Among high-income countries, the widening of the gender pay gap at the upper end of the distribution is striking.
  • There seems to be a tendency for the gender pay gap to increase as we move from lower to higher points in the hourly wage distribution, although this is by no means apparent for all countries.

 

Measures for sustainable wage growth:

  • Slow wage growth has thus been expressed repeatedly as a source of concern and the issue of wage growth has moved to the forefront of policy analysis and debates.
  • The European Commission produced research on wage dynamics in the Economic and Monetary Union and both the 2018 Annual Growth Survey and the European Council Recommendations on economic policy emphasized that faster wage growth in the euro area would help to sustain domestic demand, reduce inequalities and ensure higher living standards, thus contributing to the realization of the fair wage principle of the European Pillar of Social Rights
  • In the context of the European Semester, some countries have been encouraged to explore conditions for higher wage growth, while respecting the roles of social partners.
  • Both the OECD and the IMF have also published research on recent wage developments and their implications. The OECD Employment Outlook (OECD, 2018) observed that wage growth was “missing in action” and considered this as a sign that the economic recovery remains fragile.
  • The World Economic Outlook (IMF, 2017) observed that inflation rates in high-income countries might remain low until wage growth accelerates beyond productivity growth in a sustained manner, and pointed out the implications in terms of the appropriate pace of exit from accommodative monetary policies
  • a number of countries have recently undertaken measures to strengthen their minimum wage with a view to providing more adequate labour protection
  • while lawmakers in India are examining the possibility of extending the legal coverage of the current minimum wage from workers in “scheduled” occupations to all wage employees in the country.
  • Collective bargaining remains more limited in low- and middle-income countries than in high-income countries, but some recent initiatives have sought to extend protection to more vulnerable categories of workers.

 

Real wages in India lagging economic growth:

  • Over the last two decades, economic reforms in India have contributed to strong economic growth, with the country’s gross domestic product (GDP) increasing at an annual average of about 7%. Overall, this means that GDP rose more than four-fold since 1993 – but low pay and wage inequality persists.
  • The India Wage Report shows that low pay and wage inequality remain a serious challenge to India’s path to achieving decent working conditions and inclusive growth
  • It said that though rural wages increased faster than urban wages, the cumulative wage in urban India is more than double that of the rural India, indicating the wage inequality in the country and how quality of jobs has not picked up despite robust economic growth.
  • Referring to data of the National Sample Survey Office (NSSO), the report said the real average daily wage increased more rapidly in rural areas than in urban areas and grew more rapidly for casual than for regular workers.
  • Average wages increased faster for women than for men, and rose faster in the unorganized sector than in the organized sector.
  • Only a limited number of regular or salaried workers, mostly in urban areas, and highly skilled professionals earn substantially higher average wages
  • The real wages grew faster between 2004-05 and 2011-12 (5.6%) compared to the earlier decade (1993-94 to 2004-05) when it grew 2.6% per year. For the entire period (1993–94 to 2011–12), the average annual growth rate in real wages for all workers was 3.7% per annum.

 

Sample Question:

Discuss how the low pay and wage inequality remain a serious challenge to India’s path to achieving decent working conditions and inclusive growth.